Analytics, Financial Services, Latvia

Rimsevics had a meeting with Prime Minister Ivars Godmanis (Latvia's First Party/Latvia's Way) today to discuss the current economic situation.

Rimsevics said after the meeting that economic development continues as planned, and that the economy is cooling off, as the Bank of Latvia had forecast.

According to Rimsevics, inflation is expected to decrease at the beginning of summer, taking into consideration the falling purchasing capacity and less money in domestic consumption.

The government must carry on with its counter-inflation strategy, Rimsevics said. However, the 10% down payment for private individuals who apply for bank loans is no longer necessary, and will be lifted.

Rimsevics also said that although the national budget revenues are smaller than planned, the government must definitely keep the 1% surplus provision.

Godmanis gave no comment after the meeting.

As reported, the Latvian Commercial Banks Association's head Teodors Tverijons said recently in an interview to the newspaper Dienas Bizness that the increment rate of the loans issued by banks should not fall under 20 to 25%.

According to Tverijons, in February the crediting rate continued to decrease and the year's increment rate has fallen to less than 31%. "If it continues to decrease also in March, we will have to facilitate the conditions in order not to fall under 20 to 25%," Tverijons believes.

In his opinion, the set 10% initial payment is very disincentive because for many people it is an obstacle that denies them from accomplishing their projects. However, he also pointed out that cancellation of the 10% deposit does not imply issuing credits with no initial payment at all, each bank has the right to keep its own procedures and can demand a 20% or 30% initial payment or not to issue the credit at all.

According to Tverijons, the Association of Latvian Commercial Banks is currently reviewing the bank indicators from the first quarter of the year to see if the anti-inflation plan is continuing to influence crediting and what is the impact that the restrictions leave on macroeconomics. The organization will give its evaluation to the government next week.

At the present moment these topics are being discussed with the committees of the association, the Mortgage committee has already given it's opinion that the restrictions have to be abolished.

In 2005 and 2006 the number of loans issued by banks increased by more than 50%. In 2007 the growth rate went down rapidly and the total increase of the year depleted to 37%, according to the data from the Association of Latvian Commercial Banks.

In the end of February banks issued a total of LVL 15.1 billion in loans, which is by 1.2% more than in the beginning of the year. It includes LVL 4.8 billion issued in housing loans, which is by 2.2% more than in the beginning of the year.